Tax Court clarifies the prerequisites for imposition of repeated failure to file penalty
In the recent decision Hughes v. Her Majesty the Queen, 2016-465(IT)I, Justice Jorré reviewed the conditions necessary for the application of subsection 162(2), in light of the variations between the English and French versions of the Income Tax Act. The English version reads:
162(2) Every person
(a) who fails to file a return of income for a taxation year as and when required by subsection 150(1),
(b) to whom a demand for a return for the year has been sent under subsection 150(2), and
(c) by whom, before the time of failure, a penalty was payable under this subsection or subsection 162(1) in respect of a return of income for any of the 3 preceding taxation years
The French version of the subsection reads:
162(2) La personne qui ne produit pas de déclaration de revenu pour une année d’imposition selon les modalités et dans le délai prévus au paragraphe 150(1) après avoir été mise en demeure de le faire conformément au paragraphe 150(2) et qui, avant le moment du défaut, devait payer une pénalité en application du présent paragraphe ou du paragraphe (1) pour défaut de production d’une déclaration de revenu pour une des trois années d’imposition précédentes est passible d’une pénalité égale au total des montants suivants :
Justice Jorré found the common application of the English version, suggesting that a demand for a return under section 150(2) need only have been sent, was irreconcilable with the French version which suggests that the taxpayer must also have failed to comply with the terms of the demand. Reviewing the history of the penalty provisions, Justice Jorré undertakes a “textual, contextual and purposive analysis” finding that the French language version more accurately reflects the intention of the Act. He also finds support for this interpretation in the legislative history of subsection 220(3) of the Act.
It was found that the following four conditions must all be met in order for subsection 163(2) to apply:
1. The person must fail to file a return of income as and when required by subsection 150(1).
2. A demand for a return for the year must have been sent to the person under subsection 150(2).
3. The person must have failed to file his return within the reasonable period set out in the demand.
4. The person must, before the time of failure, have been liable for a penalty for a failure to file on time or for a repeated failure to file on time in respect of an income tax return for any of the three preceding taxation years.
After determining that there must also be a failure to comply with the demand issued under subsection 150(2), Justice Jorré notes that the Minister did not plead any assumptions of fact that there was such a failure to comply by the Appellant. As the onus is on the Minister to prove this condition was met, the appeal was allowed.